Cost to Form an LLC

Starting a business is an exciting venture, filled with visions of growth and success. Among the first steps you’ll consider is forming a limited liability company (LLC), a popular structure that provides flexibility and protection for owners. 

However, before diving in, it’s crucial to understand the costs involved. This article will guide you through both the initial and ongoing expenses of forming and maintaining an LLC, aiming to prepare you for this significant step.

How Much Does it Cost to Form an LLC? 

Understanding the initial costs of registering an LLC is the first step in budgeting for your new business. These fees can vary widely depending on your state, so let’s explore what expenses you might encounter during the registration process and beyond.

Initial LLC Costs

Launching your LLC comes with several upfront costs that are essential for getting your business off the ground. From state filing fees to name reservation and registered agent fees, we’ll cover what you need to know to budget effectively.

State Filing Fees 

This is the fee you pay to the state, alongside formation documents such as Articles of Organization, to officially register your LLC. It’s the most straightforward expense but varies widely by location. 

A few examples of state filing fees: 

  • Kentucky: $40
  • Massachusetts: $500

Learn more about your state-specific LLC formation requirements with our state guides

Name Reservation Fees 

Before you register your LLC, some states, such as Alabama, require name reservations. However, even if your state doesn’t require this, it may be a good idea to consider. This ensures the name you’ve chosen is available and protected for a period until you file your LLC paperwork. Costs for this service also vary by state, but they’re generally lower than the filing fees.

Name reservation examples:

  • Alabama: $25
  • Texas: $40

Registered Agent Fees 

An LLC must have a registered agent — someone who receives official documents on behalf of the company. While you can serve as your own agent, many opt for a professional service to ensure nothing gets missed. 

Examples of annual service costs:

  • Basic Service: $100 – $150
  • Comprehensive Service (additional features like compliance assistance): $200 – $300

Form your LLC with Northwest Registered Agent and get a year of registered agent service free.

Ongoing LLC Costs 

After your LLC is up and running, there are ongoing costs to keep it in good standing. From annual reports to franchise taxes and operating agreement creation, understanding these expenses is crucial for long-term planning.

Annual Reports 

Most states require LLCs to submit annual reports or biennial reports, summarizing key information about the business. Filing fees for these reports vary by state and can cost up to $500. 

Examples of filing fees:

  • Florida: $138.75
  • Oregon: $100

Franchise Taxes 

Some states impose a franchise tax or require businesses to pay renewal fees. These can be fixed amounts or vary based on your company’s earnings.

Franchise tax cost examples:

  • California Franchise Tax: Minimum $800
  • Delaware Annual Franchise Tax for LLCs: $300

Business License and Permits 

Depending on your business type and location, you might need specific licenses and permits. The costs for these can range from nominal to significant depending on where your business is located, so it’s essential to research what’s required for your business.

Examples of common license costs:

  • Food Service License: $100 to $1,000
  • Business License: $50 to $550 

Optional But Recommended Costs

 Investing in certain optional services can provide significant benefits for your LLC. From professional services to insurance and necessary licenses, these expenses can enhance your business’s professionalism and protect it from unforeseen issues.

Professional Services

Hiring accountants and lawyers may seem like a luxury, but their expertise can save you money and prevent legal headaches down the road. These services vary in cost, depending on your needs and their experience.

Examples of common professional service costs:

  • Accountant Rates: $150 to $400 per hour
  • Business Attorney: $150 to $325 per hour

Insurance

Business insurance, such as general liability or professional liability insurance, is crucial for protecting your assets. Premiums depend on the type of business, size, and risk level.

Types of insurance and example costs:

  • General Liability Insurance: $300 – $1,000 per year
  • Professional Liability Insurance: $500 – $2,000 per year

Get fast, affordable insurance coverage for your business with NEXT Insurance.

Operating Agreement Creation 

While not always required, creating an operating agreement is good practice. This document outlines the ownership and operating procedures of your LLC. Costs can vary, especially if you hire a lawyer to help draft the agreement.

Costs can vary widely depending on the method of creation:

  • DIY (using online templates): Free to $100
  • Attorney Drafted: $500 to $2000, depending on complexity

Conclusion

Forming an LLC is a smart choice for many entrepreneurs, offering legal protection and flexibility. However, it’s important to go into the process with a clear understanding of the associated costs. By budgeting for both the initial and ongoing expenses, you can ensure that your business has a solid foundation to grow and thrive. Remember, investing in your business’s legal and financial health from the start can save you from unexpected challenges in the future.